A study published in 2014 reached the comforting conclusion, for QFII operators, that foreigners bested local managers when returns in the domestic A-share market were compared. The study though wasn’t especially rigorous relying on annual observations which, since we’ve only had QFII since 2003, was a very small data set.
In the paper I’m highlighting this week from Liping Zou, Tiantian Tang and Xiaoming Li, all at the Massey University in Albany (New Zealand) there’s a more granular study which reverses the conclusions of the earlier work and shows local managers have an advantage over QFII operators when more realistic quarterly data is examined
What’s also interesting to note is the similarities in style, probably due to the constraints of institutional management, of the two groups. Both domestic and QFII managers have a bias towards big firms with lower P/Es, lower betas and lower price/sales ratios.
The authors express no view on how long this home-court advantage can persist though and whether or not, when a bigger data set (they still only have 45-points here in all) can be investigated, the findings are likely to alter again?
The paper in full is a relatively short read and can be accessed via the following link A Tale of Two Styles.
Happy Sunday.